5 Ways to Maximize Your 401(k) Account Starting Now

It can be hard to contribute money to savings account, let alone worry about a retirement account that seems so far away, but if you stop and think about it, it is not that far off.  Think about how long you have been at your current job, or how many years it has been since you have been out of college.  Now take a look at your retirement account and see if that balance is putting you in the right direction to live off of in your golden years.  If it’s not, and chances are you can use some improvement, then there are a few ways to maximize your retirement savings starting now.

Contribute at Least Company Matched Amount

Depending on your current financial situation it may be impossible to contribute the maximum $18.000 a year into your 401(k) account, but what is the right amount?  Let’s start first with contributing at least how much your company is offering to match.  If say they will match 6%, then contribute 6% of your salary to begin with, whatever the amount it.  If you do not do at least that, you are just leaving essentially free money on the table.

Increase a % Every Year

Whether you are lucky to have your company match, or even if you are starting out with say 3% contributions, it is better than nothing.  Now that you are used to not missing that money each paycheck, it is good to increase contributions at least one percent a year, something small so that you will not notice a significant impact to your paycheck.  Going from contributing nothing to 6% could be a bit of a shock.

Use Merit Increases

You have been living off of your income for the entire year, so when it comes time for any merit increase, just put that towards your retirement account before you start to notice how nice it is to have the extra money in your paycheck, making it likely that you will spend it.  If you get a 3% pay increase this year, then increase your retirement contributions by 3%.

Review Account Every Year

Since retirement age is so far away and we see how much we are contributing each paycheck, it can be depressing to see how slowly the balance is increasing every quarter when you see the statement, but although it seems small, you will want to pay attention to make sure that your investments have a positive increase.  As you are young in the workforce you can be more aggressive with your funds, but as you get older you can start to develop a more conservative approach.

Keep an Emergency Fund

You might wonder what an emergency fund has to do with retirement, but actually when it comes to needing money, drawing a loan from your retirement account is actually pretty easy.  The interest rates on a 401(k) loan is pretty low, you can handle online on your company’s website, and have the funds deposited quickly, but you should build at least three to six months’ worth of expenses into an account so you do not have to draw from your retirement and set you back possibly years of compound interest for retirement.

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